What are the major differences between direct financing and indirect financing?

The current stockholders’ equity on the balance sheet of Garrison Corporation, a distributor of prefabricated cabinets, is as shown in the following accounts. Preferred stock $300,000 Common stock (100,000 shares @ $4 par) 400,000 Paid-in capital in excess of par 600,000 Retained earnings 700,000 Total stockholders’ equity $2,000,000 Garrison declares a 10% stock dividend when the market price of its stock is $15 per share. The resulting account balances are as follows:

4) Write a brief summary about the financial performance of the following company by analyzing its cash flow statement: Market Company Statement of Cash Flows For the Year Ended Dec. 31, 2018 Operating Activities Net Income $4,000 Depreciation Expense 400 Increase in Accounts Receivable (500) Increase in Accounts Payable 200 Cash Flow from Operations $4,100 Investing Activities Cash Flow from Investing Activities $0 Financing Activities Increase in Common Stock $1,000 Increase in Paid-in-Capital 1,000 Dividends Paid (2,000) Cash Flow from Financing Activities $0 Change in Cash $4,100 Beginning Cash Balance 100 Ending Cash Balance $4,200

Give a short introduction to HSBC (300 words roughly)

List and explain three (3) ways/channels in which countries finance their development using international financial markets. Explain how the choice of these channels can affect the development prospects of a country.

Financing Deficit

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 10% over 2016 sales and that 2017 dividends will increase to $192,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 11%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Evaluate how the reputation of banking changed since the financial crisis in 2008. How would you address this reputational change if you were a large bank? A small bank?

By installing a new injection molding machine into its assembly line, plastic molding inc can decrease its production cost by an estimated 35000 the first year of installment, with an additional decrease of 4000 each year throughout the life of the equipment. It is estimated the new equipment will have a 10 years useful life and a salvage equal to 10% of its initial cost. Use a nominal interest rate of 15% to calculate how much plastic molding inc. can afford to pay for the new machine.

1. Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,100 per month, and the rent is $2,300 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $250, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
   $

A family purchased their apartment 8 years ago for $120,000. The home was financed by paying 20% downpayment and signing a 30-year mortgage (adjustable rate mortgage) at 6.0% per year compounded monthly on the unpaid balance. Equal monthly payments were made to amortize the loan over a 30-year period. The family needs to borrow some $40,000 and they are considering borrow a home equity loan.

1. What is the mortgage balance after 8 years (i.e. now)? (6 points)

2. Value of the apartment is now $145,000 and the family can borrow a home equity loan of up to 70% of the equity of the apartment. What is the maximum amount the family can borrow? (4 points)

3. A financial advisor suggests the family to refinance the apartment instead. That is, repay the current mortgage and apply for a new mortgage. Do you agree with the advice? Why? What will you propose otherwise? (10 points)

1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.

Capital Gains = 125-100 = 25 and Dividend Yield = $2

            Total return percent = (25+2)/100 = 27/100 = 27%

            Capital Gain return = 25/100 = 25%

            Dividend Yield = 2/100 = 2%

2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?

Dividend = 4% of 100 = $4. The capital gain = 120-100 = 20

Total return for last year = $24 = 24%

3. CAPM - A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?

CAPM - Expected return of Stock = Rf + beta*(Rm - Rf) = 5 +1.2*(12-5) = 13.4%

4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company's weighted average cost of capital (WACC)?

We*Re + Wd*Rd*(1-T) = 0.8*12 + 0.2*7*(1-0.3) = 10.58%

5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

125 million will be raised by issuing both debt and equity so that D/E remains 0.75.

D = 0.75E

E + 0.75E = 125

E = 71.43, D =125- 71.43 = 53.57

Initial cost of the plant will be = 125 + 71.43*0.10 + 53.57*0.04 = 125 + 9.2858 = 134.2858

1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.

Capital Gains = 125-100 = 25 and Dividend Yield = $2

            Total return percent = (25+2)/100 = 27/100 = 27%

            Capital Gain return = 25/100 = 25%

            Dividend Yield = 2/100 = 2%

2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?

Dividend = 4% of 100 = $4. The capital gain = 120-100 = 20

Total return for last year = $24 = 24%

3. CAPM - A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?

CAPM - Expected return of Stock = Rf + beta*(Rm - Rf) = 5 +1.2*(12-5) = 13.4%

4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company's weighted average cost of capital (WACC)?

We*Re + Wd*Rd*(1-T) = 0.8*12 + 0.2*7*(1-0.3) = 10.58%

5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

125 million will be raised by issuing both debt and equity so that D/E remains 0.75.

D = 0.75E

E + 0.75E = 125

E = 71.43, D =125- 71.43 = 53.57

Initial cost of the plant will be = 125 + 71.43*0.10 + 53.57*0.04 = 125 + 9.2858 = 134.2858

Based on the above answers explain how companies make financial decisions

Bank X’s bid rate on euros is US$1.10 and its ask rate is US$1.128.

1. (a) Calculate the bid/ask spread of euros (in %).

2. (b) Calculate the amount of euros that you can get from selling US$200,000.

3. (c) Explain how the following factors affects sizes of bid-ask spreads:

   1. (i) Inventory costs

   2. (ii) Competition with other banks

The text refers to three types of financial decision – the investment decision, the financing decision and the dividend decision.  Describe each in detail, and explain how these decisions relate to the corporate objective.  Categorise each of the following decisions in terms of whether it is an investment, financing or dividend decision and explain why it is in that category.

(a)        Javelin Pharmaceutical Ltd purchases all of the shares in O’Hara Ltd.

(b)        Tabcorp Holdings Ltd buys new poker machines for its business.

(c)        Brushwood Ltd hopes to raise $53 million in an equity issue of ordinary shares and will use the funds to repay its long-term debt.

(d)        Devastation Games Ltd purchases the copyright for a new video game.

(e)        News Corporation declares a dividend of 20c per share.

(f)         Brushwood Ltd pays $5 million to repurchase 1% of the shares held by its current shareholders.

(g)        Creek Ltd announces the raising of $50 million in bonds in the United States.

(h)        Charles Grogin sells shares to finance his new online wine cellar.